The Case for the Corporate Death Penalty The Case for the Corporate Death Penalty Restoring Law and Order on Wall Street Mary Kreiner Ramirez and Steven A Ramirez New York University Press New York NEW YORK UNIVERSITY PRESS New York www.nyupress.org © 2017 by New York University All rights reserved References to Internet websites (URLs) were accurate at the time of writing Neither the author nor New York University Press is responsible for URLs that may have expired or changed since the manuscript was prepared ISBN: 978-1-4798-8157-4 For Library of Congress Cataloging-in-Publication data, please contact the Library of Congress New York University Press books are printed on acid-free paper, and their binding materials are chosen for strength and durability We strive to use environmentally responsible suppliers and materials to the greatest extent possible in publishing our books Manufactured in the United States of America 10 Also available as an ebook For our parents, who taught us For our family, who supports us And, for Ferdinand Pecora, the Hellhound of Wall Street, who inspires us Contents Acknowledgments Preface Introduction A Short History of White-Collar Criminal Prosecutions Angelo Mozilo and Countrywide’s “Toxic” Subprime Mortgages Wall Street’s Fraudulent Sales of Toxic Mortgages Lehman’s Phantom Cash Joe Cassano and AIG’s Derivatives Casino Goldman’s Abacus The Dimensions of Lawlessness Conclusion: Looking Forward: Reimposing Law Bibliography Index About the Authors Acknowledgments This book benefited from comments made by participants at faculty workshops at Case Western Reserve University School of Law, Indiana Tech Law School, Florida A&M University College of Law, and Loyola University of Chicago School of Law, at its Norman Amaker Public Interest Law & Social Justice Retreat The book also benefited from excellent legal research by Kevin Dan, Raymond James, Jessica Backus, and Jose Lebron Nicholas Flatley, CPA, assisted with accounting issues Two anonymous reviewers provided excellent feedback and insights Loyola University of Chicago supported this project through summer research stipends Preface In defiance of any notion of the rule of law, our government failed to prosecute any senior bankers or large banks at any of the major financial firms at the center of the financial crisis of 2007 to 2009 This book demonstrates that the US government failed to pursue criminal misconduct that justified charges against the financiers at the center of the subprime crisis, and that justified dismantling Wall Street’s most powerful megabanks under current law At the outset, however, we must highlight that this book of necessity must proceed upon an inadequate factual foundation specifically because the government failed to adequately investigate and prosecute the enormous crimes underlying the financial crisis Criminal prosecutions entail the most thorough and reliable government investigations because they require proof beyond a reasonable doubt and other protections under our Constitution Most notably, the defendant must be accorded the right to counsel and the right to confront witnesses through crossexamination The rules of evidence further ensure that only relevant and reliable evidence is admitted in a criminal trial Thus, the American people essentially were deprived of the most accurate and reliable instrument for learning the truth behind the financial crisis of 2007 to 2009 Congress conducted many hearings on the financial crisis, and the firms we discuss appeared at the center of that maelstrom The Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) conducted many investigations and pursued civil fines and enforcement actions against many of the key wrongdoers during the crisis Lawmakers directed the Financial Crisis Inquiry Commission (FCIC) to investigate the causes of the crisis, and the commission produced a voluminous report that is available for free online Victims of securities fraud can and have pursued private litigation under the federal securities laws against virtually all of the firms we highlight Massive settlements and some degree of judicial fact-finding occurred in connection with these civil actions The media conducted some important investigations into the wrongdoing that occurred and reported extensively on whistleblowers These sources, however, are necessarily inferior options for learning the truth behind the financial crisis The best source of truth is in the context of adversarial criminal trials with all the due process protections that defendants in our nation enjoy Cross-examination of witnesses, in particular, is rightly termed “the greatest legal engine for the discovery of truth ever devised.” There are many negative consequences to the federal government’s failures to enforce the law, and we discuss them in great detail Yet, one profoundly unpleasant consequence is that the American people must settle for lesser sources to learn the truth of what precipitated the financial collapse of 2008, and whether incentives and disincentives have been adjusted in the aftermath of the crisis Massive fraud and other crimes caused the crisis, and the government let the perpetrators get away with billions in loot while the global economy suffered trillions in losses that we all paid Any book that seeks to examine and critique the government’s wholesale failure to pursue appropriate criminal prosecutions must by necessity rely upon sources other than criminal findings of a jury after a full-blown government investigation and public trial Our sources are therefore suboptimal Nevertheless, in composing this book we endeavored to rely upon the best primary sources available whenever possible We sought the government’s own findings and investigatory activity whenever possible We utilized the most reliable news sources for reports of witness accounts and important facts as a backup to sworn testimony or factual government findings Furthermore, because we think that our ultimate conclusion—that an unprecedented breakdown in the rule of law occurred in our nation after the greatest financial collapse in history—is something that every citizen must reflect upon, we have strived to make the basis of our conclusion as transparent as possible Therefore, whenever possible we employed Internet-based sources that are easily accessible to as many citizens as possible Another important reality that every reader should explicitly understand is that we cannot and not find any particular individual or firm guilty of criminal misconduct Only a jury after a full criminal trial could so A book cannot convict a suspect, and this book should not be read or understood to accuse anyone of criminal misconduct On the other hand, we take the federal government to task on the much more specific issue of whether sufficient evidence exists to show that an individual or firm should stand trial for criminal charges—or, stated otherwise, should face federal indictment Even on this more narrow point, more caution regarding our conclusions is in order The government by definition may access sources unavailable to us as authors The government may subpoena documents and compel sworn testimony Under threat of indictment, the government may obtain more information from putative defendants not available to us Government attorneys no doubt could access whistleblowers and informants to a much greater degree than us In every case discussed in this book the government necessarily knows more than us The most we can say as a result of this reality is that it appears or it seems that there is sufficient or strong evidence for any particular person or firm to suffer a criminal indictment Nor has the government been particularly forthcoming about its efforts and findings regarding the massive mortgage-related fraud that we chronicle in this book For example, on October 9, 2012, the Financial Fraud Enforcement Task Force held a press conference to report on the DOJ-led interagency success in combating mortgage fraud launched a year earlier in October 2011 At the press conference, Attorney General Eric Holder was eager to demonstrate the government’s pursuit of justice for Main Street, making the following statements regarding criminal prosecutions pursuant to the Distressed Homeowner Initiative: “[I]t’s been a model of success Over the past 12 months, it has enabled the Justice Department and its partners to file 285 federal criminal indictments against 530 defendants for allegedly victimizing more than 73,000 American homeowners—and inflicting losses in excess of $1 billion” (DOJ 2012e) The DOJ has repeatedly stressed its priority of investigating and prosecuting mortgage fraud in numerous public statements Shortly after the press conference the DOJ’s Office of the Inspector General (OIG) requested documentation to support the statistics provided, and in November 2012 DOJ officials admitted the statistics might not be accurate Despite repeated requests for the corrected information, the DOJ waited 10 months, until August 2013, to release more accurate figures to the public The press release dated October 9, 2012, has been modified on the DOJ’s website to present supportable statistics and the faulty numbers have been corrected, but the true numbers paint a far less robust response: 107 criminal defendants have been charged (80 percent fewer defendants that the professed claim of 530); 17,185 criminal victims were involved (a 76 percent decline from the 73,000 victims claimed in the press conference); and, most strikingly, $95 million in criminal losses were addressed (down 91 percent from the claimed $1 billion) Moreover, the DOJ never offered accurate information regarding the number of executives charged, and thus this statistic does not appear in the modified press release The OIG audit report added that for 10 months after DOJ acknowledged to OIG the statistics were inaccurate, those “seriously flawed” figures were repeatedly disseminated in various mortgage-fraud-related DOJ press releases (DOJ 2014a) The DOJ therefore does not always accurately disclose its findings and actions, compounding all the difficulties identified above with assessing the government’s response to the criminality driving the financial crisis Finally, the DOJ does not routinely explain its decisions to decline prosecution of any individual or firm Any focus on any particular individual or firm, however, misses the point of this book We not address the criminality of any particular person or firm but rather critique the conduct of the US government and the Department of Justice based upon an apparent pattern of unjustified decisions to decline criminal prosecutions (and administrative remedies such as ordering asset sales or spin-offs of subsidiaries to shareholders) of powerful financial institutions and powerful financiers It is the decision that our government made that 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Cannella, Albert A 2016 “Managerial Risk- Taking Behavior: A Too-Big-to-Fail Story.” Journal of Business Ethics http://link.springer.com uill, Lilla & Somerville, Glenn 2009 “AIG Enters Record Books with $61.7 Billion Loss.” Reuters (March 2) www.reuters.com Index Abacus, 155–158, 169, 172, 175; jury finding of civil securities fraud, 160–167 Abacus 2004–1, 167–168 ABN Bank, 167 Abu Dhabi Commercial Bank, 104–105 ACA Management LLC, 155, 163, 164–167 dversarial criminal trials, xi–xiii, 26–27, 198, 204–205, 207, 211–212, 226 AIG,25, 133–154, 161; AIG Financial Products (AIGFP),134–152; audit committee, 142, 147; Cassano, Joseph, 135, 138–139, 143–145, 147, 149–154; civil fraud settlements, 136–137, 145–149, 154; credit rating, 134, 136, 139, 145, 151; deferred prosecution agreements, 148; Enterprise Risk Management,141; Goldman Sachs, 168–169, 174, 176; negative basis adjustment, 142; SEC disclosures,142–145; shareholder losses, 133–134, 145; subprime mortgages, 133–142 AIG Financial Products (AIGFP), 134–152 American Express, 214 Angelides, Phil, 178 pathy, 225–226, 228 Arthur Andersen: Enron, 34, 42, 44; Sunbeam Corporation, 43; Waste Management, 43 Ashcroft, John, 55 AT&T, 44 Ayers, David, 55 ailout, 93, 135, 139, 150, 168–169, 174, 176, 180, 215 Bank Holding Company Act, 12–13 Bank of America Corporation, 100–103, 108, 183, 206, 214; AIG, 134; civil fraud settlements, 2, 25, 59, 66, 71, 100–102, 181; Covington & Burling, 55; successor to Countrywide, 63, 72 Bank of America, NA, 102, 182 Bank Secrecy Act, 195; money laundering, 50, 195 Barclays: LIBOR guilty plea, 191–192; money laundering, 198 Bear Stearns, 54, 56, 97, 106, 110, 111, 127, 211 Belden, Timothy, 35 Bensinger, Steven, 138 Berardino, Joseph, 34 Bernanke, Ben, 133; individual responsibility for crisis, id rigging, Bilderberg Group, 186 Black, Bill, 17, 29, 56 Blankfein, Lloyd, 168, 169, 175 Boesky, Ivan, 39, 207, 211 Boland, John, 64 onus compensation, 62, 92, 93, 96, 123, 135, 138–139, 148, 152, 183, 194, 199 Bowen, Richard, 91–92, 94–96, 206 reak up megabanks, 10, 14–16, 95, 157–159, 179, 223–225 Breuer, Lanny, 205–206; appearance of impropriety, 55–57; collateral consequences, 196–199; Covington & Burling, 214; too-big-to-jail, 200 ribery, 80–81 Brown, Sherrod, 198–199, 216 Buell, Samuel W., 21 Bush, George H W., 31 Bush, George W.: administration era white-collar crime prosecution and sentencing, 39–40, 55, 56, 129, 211; Kenneth Lay and Enron, 31–32 Caldwell, Leslie, 33 Callan, Erin, 116–117, 121, 122–124, 128 ampaign contributions, 9, 84, 96, 108, 153, 173–174, 184, 216–217, 219; follow the money, 184 apital base, 112, 116–117 Capital in the Twenty-First Century (Picketty), 218 apital levels, 111 areer death penalty, 10, 85, 157, 170, 172, 178 The Cartel,” 16, 192 Cassano, Joseph, 135, 138–139, 143–145, 147, 149–154, 169 Causey, Richard, 35–36 CDO See collateralized debt obligation CDS See credit default swaps Centrust Savings Bank, 40–41 Ceresney, Andrew, 166 ertify financial statements, 123–124, 130 Chase Bank, NA, 100 Cheney, Dick, 32 Chertoff, Michael, 33 Chicago Board of Trade, 190 Chicago Mercantile Exchange (CME), 185 Citibank, NA, 90, 91, 94, 182 Citicorp, LIBOR guilty plea, 191–192 CitiFinancial, 91 Citigroup, 89–96, 108, 206, 215, 216; civil settlements, 3, 7, 25, 89–91, 93–94, 157, 181; Covington & Burling, 55; SEC failed charge against employee, 171; SEC securities fraud settlement, 171, 176 CitiMortgage, Inc., 90, 91 Citizens United, 217 Clinton, Hillary, 215–217 Clinton, William (Bill) Jefferson, 215–217; Kenneth Lay, 31 Clinton Foundation (William J Clinton Foundation; Bill, Hillary and Chelsea Clinton Foundation), 216–217 Clinton Global Initiative, 216 ognitive capture, 212, 213, 219 Cohen, William, 153 ollateral, 135–138, 140–141, 143–145, 147, 149, 151, 169, 186, 187 ollateral defaults, 156 ollateralized debt obligation (CDO), 25–26, 93, 134, 143, 150–151, 153–154, 155–172; synthetic, 160, 170, 171–172, 174, 176 ollateral manager, 163–164, 171 ollective knowledge, 49 ommodities brokerage, 184; segregate customer funds, 184–185 Commodity Exchange Act, 13 Commodity Futures Trading Commission (CFTC), 185–189; sanctions, 13, 185; subpoena power, 187 Confidence Men (Suskind), 213 Congress: AIG bailout,150; displace state laws, 46; enact criminal laws, 46–47, 57; Friends of Angelo, 80; Glass-Steagall Act, 44; sentencing, 29–30; statutory authority to sanction financial firms, 13–14, 16, 19, 23, 45, 208; subpoenas, 200 Congressional Oversight Panel, 136 Conrad, Kent, 79 onscious avoidance/deliberate ignorance/ willful blindness, 22, 38, 72, 96 Consolidated 2008 Securities Litigation, 145–149, 154; confidential witnesses, 149 onsumer protection laws, 223 orporate death penalty, 10, 13, 15–16, 42–43, 52, 85, 132, 157, 170, 178, 184, 193; imposed, 172, 175; expanded, 223–225 Corporate Fraud Division, 220–222 Corporate Fraud Task Force, 55 orporate governance, 72, 218 Corzine, Jon, 9, 185–191, 200, 212 osts of financial crisis, 4, 6, 15–16, 18, 64, 227; indirect costs, 4, 227; minority communities, 227; of shareholder wealth, 4, 65, 82, 93, 133, 145, 176, 181, 192, 215, 225; subprime loan losses, 59, 145 Cote, Denise L., 105–106 Countrywide Bank, 78 Countrywide Financial Corporation, 24, 54, 59–85, 87, 89, 161; Friends of Angelo, 60, 79–81, 83–84; Mozilo fraud settlement, 66; Operation Hustle, 61–66, 83, 85; predatory and race-based lending, 74–79, 83; settlements, 60, 74, 77, 101 Covington & Burling, 55–58, 214 Cranston, Alan, 40 redit default swaps (CDS), 25, 133–154, 158–159, 163, 167–170, 174 redit rating agencies, 3, 87, 103–105, 116, 128, 136, 139, 145, 151, 155, 170; settlements, 103–104 Credit Suisse, 106; money laundering, 198 riminal immunity implied, 4, 7–9, 18–19, 29, 107, 179–180, 190–191, 197–201, 203, 212, 224–226, 228 riminal prosecution by DOJ, 192, 211; foreign subsidiaries, 194, 201; guilty pleas, 191–192, 194 riminal referrals to DOJ, 7, 29, 30, 89, 154, 175, 178; internal, 199 Crittenden, Gary, 93 Cummings, Elijah H., 182 Cuomo, Andrew, 148 Daily Balance Sheet and Disclosure Scorecard, 118, 121–122 ark money, 217 ebt levels, 110 ecline prosecution by DOJ,1, 4, 10–11, 88, 90, 94–95, 107, 127, 129–130, 149–154, 155, 166–167, 172, 175–177, 189, 191, 194, 199–201, 210; collateral consequences, 196, 209; pattern of criminality and nonprosecution, 179, 201 DeConcini, Dennis, 40 eferred prosecution agreements (DPAs), 52–54, 222–223; AIG and AIGFP, 148; HSBC, 9, 195–196, 198–199; money laundering, 198 Delainey, David, 35 eliberate ignorance, 22 Democratic Congressional Campaign Committee, 173 eregulation, 11, 215 erivatives transactions, 133, 143, 186, 193, 211 DeSpain, Timothy, 35 estabilize financial system, 1–2, Deutsche Bank, 193, 216 Distressed Homeowner Initiative, xiii Dodd, Chris, 79 Dodd-Frank Act, 4, 5–6, 223–224, 227 DOJ Office of the Inspector General (OIG), xiii-xiv Drexel Burnham Lambert, 43–44, 83 ue process protections, xii Dugan, John C., 86 Duncan, David, 34 Ebbers, Bernard, 38–40 conomic inequality, 217 conomic power, 18, 180, 223; concentrated, 19, 30, 203–204, 212, 218, 228 Edwards, Keith, 100 Einhorn, David, 117, 128 lectoral engagement, 225–228 lectronic bank runs, 111 Emanuel, Rahm, 173, 214 Enron: Arthur Andersen, 42; contrast to Lehman Brothers investigation, 127; George W Bush administration, 17; investigation and prosecution, 29, 31–37, 39, 55, 211, 226 Enron Task Force, 33–34 Ernst & Young: 109, 110, 113–14, 116, 120, 125–131; private securities fraud settlements, 125–126, 129–130 False Claims Act, 91 alsified and forged documents, 75, 182, 183–184; “robo-signed” affidavits, 8, 181, 184 Fannie Mae, 2, 60–63, 87, 91, 101, 105; Friends of Angelo, 80, 82 Farrell, Dina, 174 Fastow, Andrew, 34–35, 40 Fastow, Lea, 35 Federal Deposit Insurance Act, 11 Federal Deposit Insurance Corporation (FDIC): failure to make criminal referrals,30; lack of enforcement 108, 157; sanctions, 11–12; settlements, 94, 98, 102 Federal Home Loan Bank Board (FHLBB), 40 Federal Housing Administration, 2, 90; settlements, 71, 99–101 Federal Reserve: AIG bailout, 150; HSBC enforcement order, 195–196; lack of enforcement, 108, 157; sanctions, 12–13, 73, 78, 182, 198 Feldstein, Martin, 153 Financial Accounting Standards Board (FASB), 114 Financial Crisis Inquiry Commission (FCIC), xi, 73, 89, 91–92, 107, 135, 137, 140–141, 147, 150, 152, 153, 154, 157, 158, 169, 178 inancial elites, 12, 15, 57, 67, 108, 132, 173, 190, 198, 203, 217, 219–220, 223, 225–228; criminal immunity, 29, 45, 54, 56, 179–180, 201, 204, 206, 208–209, 213, 218, 226 Financial Fraud Enforcement Task Force, xiii, 107–108 Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), 89 Fleischmann, Alayne, 99, 207 oreclosure fraud, 8, 179–184; government complicity, 182–183; Independent Foreclosure Review, 182 Forney, John M., 35 Forrest, Katherine B., 161 Forster, Andrew, 137, 139, 153 Fort, Randall M., 174 Foster, Eileen, 75–76, 79 raud, 204; bank fraud, 4, 5, 21, 84, 87, 89, 100, 130, 208, 224; mail fraud, 4, 5, 21, 84, 87, 100; securities fraud, 4, 5, 20–21, 88, 89, 92, 107, 109, 122, 129, 145–149, 155, 166–167, 207, 208, 224; wire fraud, 4, 5, 21, 84, 87, 100 Fraud Enforcement Recovery Act of 2009, 23 Freddie Mac, 2, 60–63, 87, 91, 101, 105 ree rider, 212 Friends of Angelo, 60, 79–81, 83–84 Frontline (PBS), 205 Frost, Alan, 138, 153 Fuld, Richard, 111, 116–117, 119, 120, 123–124, 131; settlement, 129 Gallegly, Elton, 80 Garrett, Brandon, 53–54 Geithner, Timothy, 214 General Electric, 215; Too-Big-to-Fail status, 45 Generally Accepted Accounting Principles (GAAP), 113–116, 124, 125 Gensler, Gary, 174 Gephardt, Richard, 38 Gilchrist, Gregory, 209 Glaeser, Edward L., 213 Glass-Steagall Act: creation and repeal, 44, 215; J.P Morgan & Company, 44; Morgan Stanley, 44 Glenn, John, 40 Glisan, Ben, 35, 36 Goldman Sachs, 155–171, 184, 185, 186, 207, 216; Abacus, 155–156, 160–167; AIG, 134, 140, 144, 148–149, 168–169, 174, 176; “the big short” strategy, 161, 167–170, 175–177; deferential regulators, 170; foreclosure fraud settlement, 182; insider trading, 42; Mortgage Capital Committee, 165; revolving door, 173–174; SEC securities fraud settlement,3, 25–26, 156, 168, 175, 176; Société Générale, 169; Structured Products Group, 170; structuring and marketing fees, 163; Tourre, Fabrice, 156; underwriting fees, 170 Goodgame, Jimmie, 199 overnment sponsored enterprises (GSEs): Fannie Mae and Freddie Mac, 59–65, 82; reform, 81 Gramley, Lyle, 63 Gramm, Phil, 215 rand jury, 119; absence of investigations, 6–7, 27, 86, 123, 130, 149, 169, 226; initiate, 129, 153; requirements and procedures, 6, 129, 205– 206 Grassley, Charles, 198–199 ratuities, 81, 82 Great Depression, 14, 16, 29, 44, 46, 55, 215 Great Financial Crisis of 2008, 3, 4, 6, 8, 13, 18, 24, 27, 29, 55, 87, 93, 105, 107, 109, 149, 180, 194, 204–206, 226, 227 Gregory, Joe, 128 Habayeb, Elias, 138 Harding Advisory LLC, 172–173, 175 Hasen, Richard, 217 Hatch, Orrin, 41 HealthSouth, 211 edge fund, 156, 158, 171–172, 190, 211, 216; Magnetar, 157–160; Paulson & Co Inc., 162 Hills, Carla, 153 Holbrook, Richard, 153 Holder, Eric: appearance of impropriety, 55–58; decline prosecution, 1, 4, 10–11, 95, 102, 198–199 Home Mortgage Discrimination Act (HMDA), 78 Hormats, Robert, 174 House Committee on Oversight and Government Reform: AIG, 135; foreclosure fraud, 182; Friends of Angelo, 80 HSBC, 180, 194–200, 216; deferred prosecution agreement, 195–196, 198–199; DOJ settlement,26; drug cartels and rogue nations, 9, 18, 194–196; Federal Reserve enforcement order, 195–196; HSBC Bank, USA, NA foreclosure fraud settlement,182; HSBC Mexico,195– 196; money laundering, 8, 194–196; related entities, 197 Hunt, Sherry, 90–91, 94–96 mmigration, 211 nnocent shareholders, 7, 9, 66, 67, 88, 209 efferson, Thomas, 19, 203 ohnson, Clay, 32 PMorgan Chase, 96–100, 108, 188, 191, 206, 207, 218; compared to HSBC, 197; Covington & Burling, 55; fraud settlement, 2–3, 7, 25, 96– 99, 157, 207; LIBOR guilty plea, 191–192; mortgage servicing settlement, 181–82; SEC securities fraud settlement, 171, 176 Kaplan, Lewis A., 124–125 Keating Jr., Charles H., 40–41, 84 Keating Five, 40–41, 84 Keller, Andrew, 115 Kelly, Martin, 115, 121, 125 Khuzami, Robert, 214 Kidney, James, 214 King County, 104–105 Kirkland & Ellis, 214 Koenig, Mark E., 36 Kopper, Michael, 34 Lagow, Kyle, 71 LandSafe appraisal, 72 Lawyer, Lawrence, 35 Lay, Kenneth: investigation and prosecution of, 33–36, 207, 211; political connections, 31–32, 55 Lay, Linda, 32 Lee, Matthew, 120–121, 124–127 Lehman Brothers, 109–132, 210; Balance Sheet and Key Disclosures,120; bankruptcy, 25, 54, 109–111, 117–119, 131; contrast to Enron investigation, 127; Daily Balance Sheet and Disclosure Scorecard,118, 121–122; Executive Committee, 120, 122; private civil litigation settlement, 124, 129; “Repo 105,” 109, 111–116, 129, 130–131; securities fraud, 109, 110 everage, 109–111, 116–118, 120, 121, 128–129, 131, 168 everage ratio, 109, 112–113, 116, 117, 120, 128–129 Levin, Carl, 108, 170 Lew, Jack, 96 Lewis, Robert, 138, 144 Libby, Scooter, 50 LIBOR See London Interbank Offered Rate Lincoln Savings and Loan, 40 Lindsey, Lawrence, 32 quidity, 109, 111–112, 116, 117, 118, 128, 138, 143, 186–188, 190 quidity puts, 92–93 Lloyd’s Banking Group, 198 Lo, Andrew, 193 obbying, 9, 84, 96, 108, 216–217, 219 The Logic of Collective Action (Olson), 212 London Interbank Offered Rate (LIBOR), 179, 191–194; guilty pleas by banks, 8, 191–192, 201; manipulating benchmark interest rate, 193; manipulating global currency markets, 8, 16, 191–192 Lowitt, Ian, 116, 121–124 Lundquist, Andrew, 32 Lynch, Loretta: 57; HSBC, 58 Madigan, Lisa, 59, 74 Madsen, Robert, 71–72 The Mafia,” 16, 192 Magnetar Capital LLC: 173; Harding Advisory LLC, 172 Magnetar Trade, 157–160, 172, 175, 177 Mairone, Rebecca, 85 Marbury v Madison, 19 market manipulation, Marshall, John, 19 Massie, Gordon, 147–148 material fact, 45; accounting disclosures, 114–115, 123, 141–142, 145–146; defects, 90, 102; fraud, disclosure, omission or misrepresentation, 10–21, 45–46, 70, 73, 79, 87, 97, 98, 101, 105–106, 124, 127, 132, 146, 148, 165, 167, 169 176, 189, 206; materiality, 122–123, 127, 128–130; risks, 73, 86, 151, 156, 161 McCain, John: and Citigroup, 96; and Keating Five, 40–41 McDade, Bart, 119–120, 122, 124 McGinn, Kevin, 138 McKeon, Howard, 80 McMurray, John, 68–69, 71 mens rea, 21 Merrill Lynch, 101–103, 140; SEC securities fraud settlement, 171, 176 MF Global,179, 184–191, 200; bankruptcy, 9, 186, 190; Eurozone bond speculation, 18, 186–187, 189–190; CTFC civilaction 186; DOJ settlement 26; segregate customer funds 187–189 Milken, Michael: convictions, 39, 207, 211; Drexel Burnham Lambert, 43 money laundering, 5, 50, 194–196, 204, 223 Moody’s, 72, 104–105, 116, 187 moral hazard, 154 Morgan Stanley, 44; foreclosure fraud settlement, 182; mortgage-backed securities settlement, 25, 104–105; regulatory enforcement orders, 182; revolving door, 214 mortgage-backed securities, 24, 59, 61, 78, 86–90, 92, 94–107, 155, 158, 162, 169–170, 206 mortgage fraud: xiii, 210; Operation Malicious Mortgage, 54; predatory, 24; subprime bubble, 3, 59–60, 89, 159, 161, 167; subprime loans, 16, 24, 59, 61–63, 65, 70, 77, 87, 89, 92, 111, 133–142, 155, 158–159, 168, 170, 171, 173, 215; toxic loans, 59, 65, 68, 70, 83, 86–89, 96, 100– 101, 104, 155, 159, 161 mortgage servicing settlements, 181 Mozilo, Angelo: Countrywide, 59–85; fraud settlement, 66–74 Myers, David, 37 NASDAQ, 20 National Credit Union Administration, 98 National Security Division, 221 Neder v United States, 47 New Deal, 4, 5, 14 New York Central & Hudson River Railroad Company v United States, 48 New York Stock Exchange, 20 Nixon, Richard, 17 Nomura, 105 onprosecution agreements (NPA), 52–54, 222–223 onprosecution justifications: economic harm, 207–210; failed prosecutions, 211–212; immoral but not criminal, 1, 4–5, 84, 204–205; inadequate resources 210–211; lacking legal sufficiency, 205–207 Normand, Troy, 38 North, Oliver, 50 Obama, Barack: campaign contributions, 153, 174, 184, 214; Citigroup, 96; Corzine, Jon, 185; Dodd-Frank Act, 223; Financial Fraud Enforcement Task Force, 107; immoral but not criminal, 1, 4–5, 84, 204; pro-Wall Street administration, 213–215 O’Brien, Edith, 186–189, 191 bstruction of justice, 50 Octans I, 172 O’Donnell, Edward, 61–65, 71 Office of the Comptroller of the Currency (OCC): sanctions, 12, 78, 182, 196, 198 Office of Foreign Assets Control, 195 Office of Thrift Supervision, 73, 78 Olson, Mancur, The Logic of Collective Action, 212 O’Meara, Chris, 116 Operation Hustle (HSSL), 61–66, 83, 85 Orszag, Peter, 96 Ostrem, Peter, 164 Pacific Gas and Electric Company, 35 Park, Gene, 137 Patterson, Mark, 174 Paul, David, 40–42 Paulson, Hank, 174 Paulson & Co Inc., 155; Goldman Abacus CDO, 162–166, 168 erjury, 5, 50 Picketty, Thomas, Capital in the Twenty-First Century, 218 Pistole, John, 210 redatory and race-based lending, 180–181; Countrywide, 60, 74, 76, 83 PricewaterhouseCoopers (PwC), 141 Prince, Chuck, 89, 93 Private Securities Litigation Reform Act, 73, 124, 146 Rakoff, Jed S., 64 egulatory: career death penalty, 11, 178–179, 191; corporate death penalty, 15, 178–179, 191, 194, 224; inaction, 14, 17, 90, 119, 149, 157, 159, 178–179, 183, 192, 194, 226; sanctions, 9, 11, 88, 171, 198, 225; settlements, 106–107; waivers, 192 Repo 105,” 109, 111–116, 129, 130–131 epurchase agreement, 111 espondeat superior, 48 esponsible corporate officer doctrine, 49–50 evolving door, 56, 96, 173–174, 214–215, 219 Rice, Ken, 36 RICO, 82, 83; forfeiture, 83 Riegel, Donald, 40 Rieker, Paula, 35 RMBS Working Group, 107 obo-fraud, 180–184; regulatory sanctions, 182; settlements, 181 Romney, Mitt, 96, 174 Rove, Karl, 32 Royal Bank of Scotland: LIBOR guilty plea, 191; SEC settlement, 3, 105 Rubin, Robert: 215; Citigroup, 91–93, 96 ule of law, 37, 203–204, 211, 221; breakdown, xiv, 24, 27, 30, 108, 149, 178, 191, 218, 226; cost to, 14, 18; economic imperative, 208; inequality and, 212–213, 219; investor confidence, 42, 207–208; need to restore, 4, 26, 58, 129, 173, 225–228 Sambol, David, 66–72 Sarbanes-Oxley Act of 2002, 30, 47, 130 avings and loan crisis convictions, 29–30, 40–42, 226 Schapiro, Mary, 127, 214 Schleifer, Andrei, 213 Schneiderman, Eric, 107–108 cienter, 21, 74, 93, 94, 100, 104, 118–127, 132, 146, 148, 149, 152; beyond a reasonable doubt, 132, 205, 211 Securities Act of 1933, 45 Securities and Exchange Act of 1934, 45 Securities and Exchange Commission (SEC): and complicity,108; decline to proceed, 127, 149; disclosures, 38, 46, 67, 70, 73, 81, 113, 126, 142–145; disgorgement, 113, 172; Enron, 33; Harding Advisory LLC,172–173; Rule 10b-5, 20; sanctions, 13, 74, 131, 172; securities fraud settlements, 3, 25–26, 43, 56, 60, 66, 73, 93, 99, 102, 106, 114, 156, 166, 167, 171–173, 176; subpoena power, 74, 94; waivers, 16– 17, 192, 201 elf-regulatory organizations (SROs), 185 Senate Permanent Subcommittee on Investigations, 164, 175, 176 entencing, 30 Sessions, Pete, 80 Shad, John, 43 Shah, Sonal, 174 hort the market, 158, 167, 171, 185; Abacus, 161–165; “the big short” strategy, 161, 167–170; Citigroup, 171; Einhorn, 117; Goldman Sachs, 26, 156, 174–177; Harding Advisory LLC,172; JP Morgan Chase,171; Magnetar Trade, 158–160; Merrill Lynch, 171–172; Paulson & Co Inc., 162–166 Sieracki, Eric, 66–72, 73 Simpson, Thacher & Bartlett, 115 Skilling, Jeffrey, investigation and prosecution, 32–37, 207, 211 Smith, Adam, 212 Smith, Yves, 159–160 ocial meaning, 225 Société Générale, 140, 169 Sparks, Daniel, 163 peaking fees, 9, 215–216 Standard & Poor’s (S&P), 3, 103–105 Standard Chartered: money laundering, 198; contributions, 216 Standard Oil, 44 tated income loans, 62 tatute of limitations, 81, 110, 180; crimes affecting a financial institution, 19, 22–23, 60, 94, 100, 102, 130, 152, 176 St Denis, Joseph, 140, 147 Steffelin, Edward, 164 Stein, Kara, SEC commissioner dissent, 16, 192 Stewart, Martha, 50 Stiglitz, Joseph, 203, 213 Storch, Adam, 174 tructured investment vehicles (SIVs), 92–93 Sullivan, Martin, 138–139, 144, 149, 153 Sullivan, Scott, 38 Summers, Lawrence, 216 Sunbeam Corporation, 43 Suskind, Ronald, Confidence Men, 213 Swain, Laura Taylor, 146–149, 152 Szymoniak, Lynn, 183 Too-Big-to-Fail, 10, 14–15, 19, 190, 194, 199, 209, 223–224, 227 Too-Big-to Jail (TBTJ), 200–201 Tourre, Fabrice: civil securities fraud trial, 169, 160–167, 174, 176; Goldman, 156–157, 161, 163–166, 168; scope of employment, 166 Towns, Edolphus, 80 rue sale, 114 UBS, 140, 193, 214, 215; Japanese subsidiary, 194, 201; LIBOR guilty plea, 191–192 nderwriting, 86, 90, 91, 92, 95, 97, 102–103; underwriting fees, 170 United States v Dotterweich, 50 United States v Ebbers: conscious-avoidance, willful blindness, 38–39 United States v Park, 49 US Attorneys’ Manual (USAM), discretion to prosecute, 51, 58 U.S Bancorp, 108 US sentencing guidelines, 30, 39 US Treasury, 15, 199; AIG bailout, 150; subpoena response, 200 Valukas, Anton, 110,115, 118, 120–122, 128, 210 Valukas Report, 110, 117, 118–119, 123–126 Veterans Affairs insurance, 99–100 Viniar, David, 169, 175 Vinson, Betty, 38 Warburg Pincus, 214 war on drugs, 204 war on terror, 210 Warren, Elizabeth, 216 Washington Mutual, 97 Waste Management, 43 Waxman, Henry: Bush Administration Contacts with Enron House of Representatives minority report, 32 Wells Fargo, 108; mortgage servicing settlement, 181; Wells Fargo Bank, NA foreclosure fraud settlement, 182 whistleblowers, 86, 88, 131, 148, 152, 181, 183–184, 205; Boland, 64; Bowen, 91–92, 94–96, 206; DOJ failure to follow-up,6, 76; Edwards, 100; Fleischmann, 99, 207; Foster, 75–76, 79; Hunt, 90–91, 94–96; Lagow, 71; Lee, 120–21, 124–127; Madsen, 71–72; Massie, 147–148; McMurray, 68–69, 71; O’Donnell, 61–65, 71; Szymoniak, 183; Winston, 72, 206 willful blindness/deliberate ignorance/conscious avoidance, 21–22, 38, 92, 96, 100, 118, 121, 123, 132, 148, 151, 152, 188–189, 205 Willumstad, Robert, 142 Winston, Michael, 72, 206 WorldCom: bankruptcy and fraud, 37–39; Ebbers, 38–40 Yates, Buford, 37 Yates, Sally Quillian, 57 Yonekura, Stephanie, 104 About the Authors Mary Kreiner Ramirez is Professor of Law at Washburn University School of Law She is a former Prosecutor for the Department of Justice Antitrust Division, where she prosecuted white-collar criminals, and a former Assistant US Attorney for the District of Kansas She has published numerous articles addressing the challenges in combating white-collar crime Steven A Ramirez is Professor of Law and Associate Dean at Loyola University of Chicago, where he also serves as Director of the Business Law Center This is the second book he has authored relating to the subprime mortgage crisis and its meaning in terms of the rule of law He previously served as an Enforcement Attorney for the Securities and Exchange Commission and a Senior Attorney for the Federal Deposit Insurance Corporation .. .The Case for the Corporate Death Penalty The Case for the Corporate Death Penalty Restoring Law and Order on Wall Street Mary Kreiner... justification for the government’s failure to enforce laws now on the books, promulgated well before the crisis Furthermore, this book proposes attainable measures to restore the rule of law in the financial... government for managerial immunity So the corporate death penalty in the financial sector harms only the managers of the criminal megabanks Job losses for other than criminal managers are not a